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The 2008 PCPS Succession Survey provides succession planning revelations, conclusions, and recommendations for CPA firms:

Change is a constant. It isn't something that will happen when certain partners retire; it's something that occurs in firms now, every day. Although the retirement of founding or current partners at some point in the future seems like a milestone event, it will be only one detail in the life of the firm. Succession planning is about sustaining the firm throughout constant change. It should be a regular and ongoing practice.

Creating a written succession plan is a prudent step in the succession planning process. However, very few firms appear to have accomplished this goal. In the 2008 Succession Survey, 35% of multi-owner firms and 9% of sole proprietors (sole owner firms and sole practitioners) had a written succession plan in place, compared to just 25% of multi-owner firms and 8% of sole proprietors in the 2004 survey. While this is an improvement, the profession still has a long way to go. Many firms appeared, however, to understand the importance of succession planning. A total of 67% of multi-owner firms and more than 50% of sole proprietors believed succession planning would be a significant issue for them in the near future. Actual progress had not yet occurred in most cases.

While the 32-page guide takes a look at various succession planning issues, there is not one mention of an ESOP or employee ownership in the guide. This is very unfortunate, as all private companies, including CPA firms, will benefit from considering ESOPs and employee ownership in their succession and business transition planning process. Here are some recent stories about ESOP-owned CPA firms:

  • Burr Pilger Mayer (BPM), the largest non-"Big Four" CPA firm in the San Francisco Bay Area, recently announced that they have established an ESOP for its 325 employees:

    Mayer noted that the ESOP not only provides new benefits for employees, but also assures that a solid succession plan is in place for those moving up the ladder to partner, as well as those partners approaching retirement. "This is a perfect opportunity for all of us to grow together," he said.
  • Succession Strategies - Using an ESOP for Succession Planning discusses ESOPs for CPAs and other professional services companies. It cites HLB Tautges Redpath, Ltd., a 100-percent employee-owned accounting firm, as an example. It was the winner of the 2008 ESOP Company of the Year by the Minnesota/Dakotas Chapter of the ESOP Association:

    Through the implementation of employee ownership, the leaders of HLB Tautges Redpath, Ltd. are sharing the pride and responsibility of ownership with employees, planning ownership succession for current and future shareholders, and dispersing profits from growth with all qualified employees annually.

  • Indiana-based CPA firm Katz Sapper & Miller (KSM) is also partially-owned by an ESOP. ESOP funds KSM buyback discusses how their ESOP serves as a powerful retention tool.

    An ESOP gives us the opportunity to let everyone participate in the ownership of the company," Miller said. "It's a wonderful retention tool. Many kids coming off campus are influenced by stock-option opportunities. This ESOP goes down that path."

    It also discusses one of the major obstacles to ESOP-owned accounting firms. Generally a company must be a C Corporation or an S Corporation. However, if you are a sole proprietorship, LLC, partnership, or other business entity, the business entity could be converted into a C Corporation or S Corporation prior to the creation of the ESOP.

    Most accounting firms are configured as limited liability partnerships or professional corporations, which don't allow employee ownership beyond the principals. But Katz Sapper's purchase of KSM, its consulting and tax services entity, cleared the way for the move. KSM, an S corporation that pays no federal tax, owns the entire Katz Sapper accounting practice and, thus, can be employee-owned.
  • SS&C Business & Tax Services, Inc. is "a tax and accounting services firm, which is over 50% employee owned through an ESOP."

If you are aware of any other ESOP-owned CPA firms, please let me know and I will add them to this post.

Succession Survey

For your reference, I have included a partial outline of the topics discussed in The 2008 PCPS Succession Survey:

  1. Succession Planning Overview

    1. Developing Future Leaders

  2. Succession Planning – Multi-Owner Firms

    1. Expectations for Owners' Retirement
    2. Retirement Agreements
    3. Owner Compensation — Existing Owners and Retired Owners
    4. Owners' Involvement with Firm after Retirement
    5. Calculation of Retirement Buyouts
    6. Occurrences That Will Force a Change in Duration or Amount of Buyout
    7. Owner Non-Compete Provisions
    8. Transitioning Soon-to-Be-Retired Owners and Their Clients
    9. Challenges Firms are Trying to Address That Hamper Succession Planning
    10. Likely Transition of the Firm when the Senior Owners Retire
    11. The Firm Environment and People Management in Multi-Owner Firms
    12. Creating an Environment to Facilitate Succession Transition

  3. Succession Planning – Sole Proprietors

    1. Succession planning at sole proprietor CPA firms
    2. Practice Continuation Agreements
    3. Non-compete Clause for Disabled/Retired Owner/Proprietor
    4. Buy-Back of Practice Should Disability Heal
    5. Plans for Existing Employees
    6. Short-Term Disability: Quality Controls to Ensure Work Quality
    7. Client Transitioning Plans in the Case of Retirement
    8. The Firm Environment and People Management in Sole Proprietor Firms

  4. Succession Best Practices

    1. General succession best practices
    2. Create the Plan
    3. Fix Retirement Issues
    4. Develop Future Leaders
    5. Succession Planning: The Process
    6. Retirement Concerns
    7. Developing Future Leaders and Client Transition
    8. Sole proprietor succession best practices
    9. Create the Plan
    10. Consider a Practice Continuation Agreement
    11. Practice Continuation Questions


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